International inequality

Differences in economic institutions Economic institutions such as competitive markets, credible contracts, and systems of property rights enable economic agents to pursue the economic activities that underpin growth. It has been argued that the presence or absence of strong economic institutions is a primary determinant of development. Economists have begun to consider the set of economic institutions adopted by countries as a choice that, in turn, is determined endogenously by competing social forces. According to this theory, differences in economic institutions arise from differences in political institutions. In their paper Paths of Economic and Political Development Acemoglu and Robinson discuss the intertwined nature of economic institutions to political ones. The authors conclude that although economic institutions are the key factor in final economic outcomes, they are endogenous. Meaning economic institutions are determined by political institutions and the distribution of resources. They identify the above-mentioned as the "two main state variables". Accordingly, we find that political institutions affect economic institutions both directly and indirectly (via de jure and de facto power). Connecting to the issue of international inequality, the distribution of resources is identified as the main point of conflict. Because the distribution of resources is complex, opposing entities in a country cannot agree on a set of economic institutions that maximize "aggregate growth", thereby causing some countries to fall behind. Simply proving the influence of political institutions on economic ones, and with that, the development of a country. The main conclusion the authors reach is that the economic institutions that promote prosperity are dependent on democratic political institutions. Others, on the other hand, have argued that a country's success is related to the trade-off between "dictatorship and disorder". Dyankov et al in The New Comparative Economics discusses this idea and uses the IPF (institutional Possibility Frontier) In a widely cited paper by Daron Acemoglu, Simon Johnson and James A. Robinson, the authors concluded that the majority of present-day inequality among former European colonies can be attributed to the persisting role of economic institutions. Describing European colonization as a "natural experiment", they argued that colonizers who encountered dense populations with developed economies, such as in Central America and India, were incentivized to impose extractive economic institutions. In contrast, colonizers who encountered sparse populations with few natural resources, as in North America, were more likely to institute broad-based property rights. This resulted in a "reversal of fortune" around 1800 as regions that were underdeveloped at the time of colonization were able to industrialize more effectively. Path dependence In the context of development, path dependence is the idea that certain historical points may have an outsized and persistent impact on the long-term economic and political character of nations. These points may produce outcomes that induce positive feedback and are therefore difficult to reverse. Political scientist James Mahoney has examined the political consequences of a period of liberal reform in Central America during the 19th and early 20th centuries, and argued that whether policies were implemented along radical or reformist guidelines directly determined the success of the liberalization efforts and ultimately resulted in vastly different political outcomes which persisted for decades, ranging from military authoritarian regimes (Guatemala and El Salvador) to progressive democracy (Costa Rica). The Dualistic-Development Thesis Another concept of international inequality in the context of development can be found in the notion of dualism in the world, understood as "the coexistence of two situations or phenomena (one desirable and the other not) that are mutually exclusive to different groups of [international] society—for example, extreme poverty and affluence, modern and traditional economic sectors, growth and stagnation, and higher education among a few amid large-scale illiteracy." one can find the trace of dualistic society in structural-change as well as international-dependence theories. This concept demonstrates how the gap between the poor and the rich in the global world is persistent, if not steadily increasing. There are four key arguments in this thesis; • Coexistence of two different sets of conditions, one superior and one inferior, in a given space • The chronic, persistent nature of this coexistence goes beyond historical and national elements aspects • An inherited tendency to increase the existing cleavage between the superior and inferior • Further depression and underdevelopment of the inferior as a result of its interrelation with superior elements The dualism-development thesis rejects the traditional neoclassical and empirical theories that attribute poverty and inequality solely to internal factors and the political culture of these poor countries. It also refutes the recommendations given and forced upon developing countries. Instead, it focuses on external and international factors, such as international dependence in economics, finance, and trade, and forces that might not have given rise to international inequality but surely have played an important role in keeping the gap wide. Therefore, this doctrine suggests fundamental economic, political, and institutional reforms not only at the regional and domestic levels but also at the global and foreign levels. However, there are criticisms about this type of thesis. First, although it offers a logical and well-founded explanation of international inequality, it lacks a comprehensive solution to the problem. Second, the number of successful fundamental reforms in many of the concerned countries largely failed to demonstrate significant progress or a decrease in overall inequality, whether at the domestic or foreign levels. Other explanations Multiple other causes of international inequality have been proposed, such as: • Geography: The location of countries often affects their economy. For example, landlocked countries have difficulty accessing sea trade routes. • Economic structure: the economies of different countries are composed of different industries, such as poorer countries relying primarily on agriculture. • The use of the United States dollar in international trade allows the US government to create wealth by creating new money. • Environmental factors (including work by Jared Diamond) • Cultural factors (including work by Max Weber) == International inequality during COVID-19 ==

The worsening of inequality is considered the most significant outcome of COVID-19. The pandemic has had the greatest impact on vulnerable groups such as the elderly, people with disabilities, children, women and refugees, low-income people, youth, and informal workers. The research and measures of the World Bank, say that "Covid-19 has increased inequality in nearly every sphere: in the availability of vaccines, in economic growth rates, in access to education and health care, and the scale of job and income losses". Between 2020 and 2021 global billionaire wealth grew by $4.4 trillion but at the same time, more than 100 million people fell below the poverty line. The threat of automation has spread to the work of low-skilled, person-to-person service workers. Before the pandemic, the literature viewed these jobs as less affected, for example, in the health and education sectors. New labor market uncertainty reduces demand for certain types of labor. This shift consequently increases inequality. Another inequality was visible after the beginning of lockdowns. Millions of newly unemployed joined the long queues for social security benefits. The loss of jobs differs by the nature of the job. Tourism, gastronomy, recreational services and accommodation, airlines, and industries that rely on personal interactions have been the hardest hit. Lockdown rules and social distancing requirements limited employees. The inability of workers to work from home deprived a lot of them of their jobs. Inequality in access to healthcare COVID-19 is the biggest health crisis in a century. Not only were poor countries with weak health care systems hard-hit, but also economically strong, developed, and rich countries. America is considered the most hit country in terms of unequal access to resources and health services. One of the reasons for their highest number of cases and deaths is their worst average healthcare standards among the major developed economies. Also, the efficacy varied between distributed vaccines. They are more likely to have lower average efficacy in lower-income locations. Sputnik, Sinopharm, and Janssen vaccines are mostly used in low and middle-income countries with lower efficacy against new variants of virus compared to vaccines from Pfizer and Moderna—used mainly in higher-income areas. The number and duration of periods of school closures have varied across countries. Inequalities were evident in the extent to which their families and home environments supported their learning. Lack of opportunities, tools, or access to affordable, reliable internet connections were daily problems to deal with. Children from low-income families were more likely to be excluded from online distance learning because of an inability to afford sufficient internet or devices. In addition, in some countries, girls have faced widespread discrimination in access to education and to the internet. Society was much more likely to expect them to take on a greater household burden during distance learning than it was to expect boys to. In developing and poor countries, girls who were out of school were at greater risk than boys of facing abuses such as child marriage and other forms of gender-based violence. == International wealth distribution ==

Between 1820 and 2000, global income inequality increased by almost 50%. However, this change occurred mostly before 1950. Afterwards, the level of inequality remained mostly stable. It is important to differentiate between between-country inequality, which was the driving force for this pattern, and within-country inequality, which remained largely constant. Global income inequality peaked around the 1970s, when world income was distributed bimodally between "rich" and "poor" countries, with little overlap. Since then, inequality has been rapidly decreasing, and this trend seems to be accelerating. Income distribution is now unimodal, with most people living in middle-income countries. , a study by the World Institute for Development Economics Research at the United Nations University found that the richest 1% of adults owned 40% of global assets, and that the richest 10% of adults accounted for 85% of the world's total. The bottom half of the world's adult population owned barely 1% of global wealth. Oxfam International reported that the richest 1 percent of people owned 48 percent of global wealth , and would own more than half of global wealth by 2016. In 2014, Oxfam reported that the 85 wealthiest individuals in the world had a combined wealth equal to that of the bottom half of the world's population, or about 3.5 billion people. , the major component of the world's income inequality (the global Gini coefficient) was composed of two groups of countries (called the "twin peaks" by Quah [1997]). The first group has 13% of the world's population and receives 45% of the world's PPP income. This group includes the United States, Japan, Germany, the United Kingdom, France, Australia, and Canada, and comprises 500 million people with annual incomes over 11,500 PPP$. The second group accounts for 42% of the world's population but receives only 9% of its PPP income. This group includes India, Indonesia, and rural China, and comprises 2.1 billion people with an income level under 1,000 PPP$. In terms of between-country inequality, between 1820 and 2000, Latin America, Africa, and the Middle East almost always had a higher average Gini coefficient than Europe, indicating higher inequality. Asia was usually below average. , over 70% of the world's adults had under $10,000 in wealth. Only 0.7% of the world had one million dollars or more in wealth, but this number is increasing. , there were 1,125 billionaires (in US dollars) who owned $4.4 trillion in assets. , the total value of global assets was about $125 trillion. The evolution of the income gap between poor and rich countries is related to convergence. Convergence can be defined as "the tendency for poorer countries to grow faster than richer ones and, hence, for their levels of income to converge". China's economic growth led to a major decrease in world inequality. Since China's Reform and Opening Up, more than 1 billion Chinese people have been lifted out of poverty. The majority of global poverty reduction between 1981 and 2008 occurred in China. As academic Lan Xiaohuan writes, during that period, "the number of poor people in the world outside China remained more or less unchanged. It can therefore be concluded that achievements in global poverty reduction come mainly from China." ==Social welfare spending==

Overall, social spending is lower in the Global South, with some regions registering just a few percentage points of GDP. == Proposed solutions ==

Potential approaches to decrease inequality include: • Education and family planning: Many countries with access to education have higher income levels. Part of this is because people are striving for a career and higher education. Countries without access to education have lower incomes. Women who have access to education will have fewer children because they focus on building themselves. • Democracy: Democracy allows people to have a say in where money is spent, such as in social welfare programs. • Government policies: The government can create policies that can aid people experiencing poverty and help provide medicine. • Empowerment of women • Improve agriculture: Poor countries tend to suffer from food shortages. One thing that could be done is to help improve farming grounds and livestock development. Starting the proper groundwork for crops will help provide the nutrition many people need. Livestock can provide milk, eggs, meat, and cheese for consumption. This can also help provide fur and feathers for making clothing and other goods, which could be sold to help with low income. • Volunteers who travel to poor countries to help • A global wealth tax: Thomas Piketty suggests a global and coordinated wealth tax as the remedy to trends of global inequality, saying that only a direct solution to wealth concentration can be successful where other governmental policies have failed. Piketty proposed an international agreement among nations to tax all personal assets at phased rates. The simplest version of the proposal would levy a 1% tax on net worth between $1.3 million and $6.5 million and a 2% tax on net worth above $6.5 million. This idea has so far failed to gain ground and has been subject to criticism. Schuyler argues that a wealth tax would cause significant declines in investment, salaries, incomes, and national production, making all groups worse off. In addition, he raises the problem of significant administrative and enforcement hurdles, making Piketty's wealth tax impractical to a large extent. • Reducing illicit wealth outflows: From 2003 to 2012, developing countries lost $6.6 trillion to illicit financial flows, with the amount rising at an average of 9.4 percent each year. Since this could have been used for investments into human capital, infrastructure and economic growth, a strong correlation exists between illicit outflows and the levels of poverty and economic inequality. • Minimum wage: Minimum wage levels are often described as an important part of the challenge to reduce inequality. • Worker unions: Historically, labor unions have played an important role in reducing inequality, particularly in negotiating better pay for low-wage workers. Income disparity is typically lower in countries with higher union membership and collective bargaining coverage, while inequality tends to worsen in countries with decreasing union membership and coverage. Research has stressed the need to address inequality through a multi-pronged approach, including taxation reform and curbing excesses associated with financial deregulation, while accounting for country-specific circumstances and potential trade-offs with other policy objectives. ==See also==